One of the major concerns surrounding the release of Apple’s (NASDAQ:AAPL) iPad mini was that the device, which is expected to cannibalize some sales of Apple’s own 9.7-inch iPad, would not be as profitable as its larger counterpart.
So over the weekend, IHS iSupply took one of the new minis apart, factored a bill of materials, added manufacturing costs, and determined a likely gross profit margin — 43 percent on the base 16GB Wi-Fi only model.
Apple’s bill of materials, or BOM, on the entry-level $329 iPad mini was determined to be about $188. The teardown also found the 32GB and 64GB iterations only cost Apple an additional $15.50 and $46.50 in storage, respectively, bringing profit margins for those models up to 52 percent and 56 percent.
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We know from earnings that the company’s average profit margin was at 40 percent in the July through September quarter, which means the mini is keeping with Apple’s pricing model. However, if the device only attracts existing iPad customers who prefer the smaller mini, Apple’s actual profit per device sold will take a hit.
Apple must be counting on drawing in a new customer. The question is, who?
It won’t be the price-conscious consumer — Amazon (NASDAQ:AMZN), Barnes & Noble (NYSE:BKS), and Google (NASDAQ:GOOG) already have much more affordable tablets on the market. And the mini’s size is nothing novel — all of the iPad’s lower-end competitors are similar in size.
So Apple is left with customers who want a more portable, lightweight tablet but don’t want to compromise on the software. Despite its flaws, which have been drawing a lot of criticism lately, Apple’s iOS remains one of the most, if not the most, desirable mobile operating systems.
We can only assume Apple did its research and determined that the market for an iPad mini was substantial, but analysts and investors are still skeptical, and will likely remain so until earnings are reported for the holiday shopping quarter, finally answering the question of how the new mini will impact Apple revenues and profit.
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